Looming tax cut debate already ripples through Boxer-Fiorina race

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FILE - In this July 19, 2010 file photo, Sen. Barbara Boxer, D-Calif., campaigns at SolarCity headquarters in Foster City, Calif. Jobs and the economy may be foremost on voters' minds, but Boxer has been quick to stress another issue that has been a hallmark of her political career, her support of abortion rights. (AP Photo/Paul Sakuma, File)

WASHINGTON — A looming debate in Congress over whether to continue income tax cuts for the wealthy is already unfolding in California’s Senate race, highlighting a stark ideological contrast between Democratic Sen. Barbara Boxer and the Republican trying to unseat her, former Hewlett-Packard CEO Carly Fiorina.

Fiorina, who signed a no-new-tax pledge earlier this year, has argued on the campaign trail this month that allowing any taxes to rise would inject additional uncertainty into the fragile economy just as businesses are deciding whether to hire or expand.

Boxer for the most part has embraced President Barack Obama’s proposal: that the tax cuts enacted in 2001 and 2003 under President George W. Bush should continue for all but the wealthiest Americans, namely couples making more than $250,000 or individuals who earn more than $200,000.

Lawmakers are expected to take up the tax debate in mid-September, just weeks before voters head to the polls for the November election that will determine the balance of power in Congress. The timing virtually ensures that the debate will reverberate in races across the country, including California.

The tax cuts — for taxpayers across all income levels — will expire at the end of the year unless Congress votes to extend some or all of them.

Leaders of both parties appear equally confident that the issue is a political winner, with Democrats eager to portray Republicans as doing the bidding of the wealthiest Americans, even if it means adding hundreds of billions of dollars to the federal debt, and Republicans pressing the case that Democrats are poised to enact an enormous tax increase in the midst of a recession.

So it has gone with Fiorina and Boxer.

“The worst thing we can do in the middle of a devastating recession,” Fiorina said at a campaign appearance in Bakersfield this month, “is to raise taxes.”

“The choice is between two candidates, one who embraces the policies of George W. Bush, who wants to go back to deregulation, tax cuts to big corporations and the wealthiest among us,” Boxer said at a news conference in Santa Monica last week. The three-term senator has said she favors Obama’s approach to the Bush tax cuts but has not endorsed a specific income threshold for reinstating pre-2001 tax levels, suggesting she might favor a higher cutoff than $250,000 for families.

Extending the full scope of the 2001 and 2003 tax cuts — which aside from lower-income tax brackets also includes breaks for investment income, tax relief for married couples and other tax credits — would add an estimated $3.7 trillion to the federal debt over the next decade. Obama’s proposal to allow tax cuts to lapse for families making more than $250,000 but extend them for the middle class would reduce that figure by $700 billion.

One possibility advanced by some economists and backed by some conservative Democrats is to extend the tax cuts for another year. That would serve both a political and economic purpose — removing the issue as a political football in the fall election and avoiding taking money out of the economy before the recovery has gained more traction.

But for now, Democratic congressional leaders and Obama administration officials appear ready to forge ahead with the tax cut debate this fall. A May poll by the Public Policy Institute of California suggests, at first blush, that Boxer’s position is a popular one. Though the question was in the context of how to solve the state’s budget shortfall, two-thirds of respondents said they would favor raising income taxes for the wealthiest Californians.

But institute President Mark Baldassare said he suspects that Fiorina’s argument would also resonate.

“The notion that we’re in terrible times and don’t make things worse in a recession, that would seem to play fairly well too,” he said. “Both candidates’ statements are pretty safe politically.”

Despite the heated rhetoric, the actual difference between the positions of Boxer and Fiorina is relatively small. Democrats would extend the tax cuts for about 98 percent of households, in order to uphold Obama’s pledge not to raise taxes on families earning less than $250,000; Republicans would continue them for all households.

Economist Stephen Levy, director of the Center for Continuing Study of the California Economy, said in an interview that extending the tax cuts for all but the 2 percent of wealthiest families is the wrong approach if the president and lawmakers are serious about lowering the debt.

While there is a strong case for postponing any tax increases until next year, Levy said, “I think the president will need to rethink his pledge not to raise taxes on people who make less than $250,000.”

Contact Mike Zapler at 202-662-8921.

CANDIDATES ON ECONOMY

Other contrasts between Boxer and Fiorina on the economy:

Estate tax: After lapsing this year, set to rise from zero to 55 percent on Jan. 1. Boxer says the tax should be reset at its 2009 level: 45 percent, with exemptions for estates worth up to $3.5 million. Fiorina counters that the tax should be eliminated permanently.

Stimulus: Boxer voted for the roughly $800 billion bill and has campaigned aggressively on it, arguing that it created jobs and headed off an even worse recession. Fiorina calls the measure a waste of taxpayer money that drove up the debt with little to show for it.

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